31‐10‐2012

1

An Alternate Approach to NR Demand Estimation in India : Tyre Industry Proposal

Rajiv BudhrajaDirector General

Automotive Tyre Manufacturers’ Association(ATMA)Email: atma@atmaindia.org ; rajiv@atmaindia.org ; Website: www.atmaindia.org

Presented at : International Rubber Conference– 28th Oct’ 2012, Kovalam, Kerala 1

Contents

• Relationship : GDP: Automobile Sector : Tyre Industry & NR Demand

• Brief Overview of Auto Sector

• NR Production and Consumption Trends

• Suggested Model for NR Demand Estimation

2

31‐10‐2012

2

GDP‐Auto Industry –Tyre Industry ‐ Rubber Equation  

GDP

AUTOMOBILE INDUSTRY

TYRE INDUSTRY

RUBBER DIRECT &   STRONG 

CO‐RELATION

3

There exists a close, strong and positive inter‐linkage between GDPGrowth which drives Automobile Sector growth which, in turn, spursvolume growth in Tyre Industry and consumption growth in NaturalRubber.

Linkage between GDP Growth &NR Consumption….  MT(%)

GDP Growth has spurred Automobile & Tyre Production –reflected in NR consumption growth as well ! 4

NR Consumption 

4

5.8

3.8

8.5

7.5

9.5 9.69.3

6.8

8

8.5

6.5

5.5

500000

600000

700000

800000

900000

1000000

1100000

2

4

6

8

10

12

1990s 2001‐02 2002‐03 2003‐04 2004‐05 2005‐06 2006‐07 2007‐08 2008‐09 2009‐10 2010‐11 2011‐12 2012‐13

GDP Growth Rate NR Consumption

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3

Macroeconomic ScenarioIndia’s GDP Growth rate (%) FY 12‐13 

Estimates/Revised Projections 

Note: The Month/Year on X‐axis  represents the period at which the projection was made. 5

6.5

7.77.9

7.3

6.5

7.5

7.0

5.6

6.7

7.3

4.9

6.5

5.5

6.9

6.5

5.5

4

4.5

5

5.5

6

6.5

7

7.5

8

8.5

9In 2011

Jan'12

Jun'12

Jul'12

Mar'12

Apr'12

Sep'12

Aug '12

May'12

Sep'12

Jun'12

Aug '12

Jun'12

Earlier

Sep'12

GDPGrowthRate FY11‐12

RBI Govt. ofIndia

ADB PMEAC IMF CRISIL WorldBank

S & P

(%)

Revisiting the Automobile Growth Projections (FY12‐13)(As against SIAM Projections (made in Oct’12) ref. column. 4 – ATMA Marketing Group 

has given an assessment/estimate ref. column. 5 in Apr’12)

1 2 3 4

S.No 

Category 

Actual  (Production)%YoY

Actual(Production)  %YoY

FY 12‐13

Projection (%YoY) ‐ (Sales)

FY 12‐13By SIAM

FY 10‐11 FY 11‐12Over

Apr‐Sep’11(6 mths)

Over FY 11‐12(12 mths)

(Oct’12)

1 Commercial Vehicles (M&HCV) 38% 11% (‐)18% (‐)23%

3‐5%*

2Light Commercial  Vehicles (LCV)

31% 27% (‐)5%(‐)1%

3 Passenger Cars 27% 2% (‐)1%

(‐)6%

8‐10%**4 UV/MPV/SUV

25% 15% 31% 25%

5 Scooters43% 25% 21%

11%

5‐7%**6 Motorcycles

24% 14% (‐)0.03%(‐)1%

7 Three Wheelers 29% 10% (‐)15%

(‐)14%0‐2%

8 Tractors****26% 21% (‐)6%

(‐)9%NA

Total  (All Vehicles) 27% 14% 2% (‐)1% 5‐7%

*Total CV; ** Total PV; *** Total 2W, **** Apr‐AugSource : SIAM 6

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4

CV Production FY 2012‐13  & YoY Comparison‐

38%

11%

‐8%

‐20%

‐10%

0%

10%

20%

30%

40%

50%

2010‐11 2011‐12 2012‐13(Est)

TOTAL31%

27%

2%

0%

5%

10%

15%

20%

25%

30%

35%

2010‐11 2011‐12 2012‐13(Est)

TOTAL

Medium & Heavy Commercial Vehicle (M&HCV)

Light Commercial Vehicles(LCV)

7

Month‐wise Trend in Production of MHCV & LCV(Figs/Nos)

8

4201 4555

2428627505

20196

4514

0

10000

20000

30000

40000

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

2010‐11 2011‐12 2012‐1

Goods Carriers Passenger Carriers Avg. Monthly/Goods Carrier Avg. Monthly/Passenger Carrier

M&HCV

30746

39676 38666

3751 4240 5107

0

10000

20000

30000

40000

50000

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

2010‐11 2011‐12 2012‐1

Goods Carriers Passenger Carriers Avg. Monthly/Goods Carrier Avg. Monthly/Passenger Carrier

LCV

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5

Passenger Vehicles Production FY 2012‐13 & YoY Comparison

27%

5%

2%

0%

5%

10%

15%

20%

25%

30%TOTAL 27%

2%

‐1%‐5%

0%

5%

10%

15%

20%

25%

30%Passenger Car

17% 19%

58%

0%

10%

20%

30%

40%

50%

60%

70%Utility Vehicles

9

Month‐wise Trend in Production of Passenger Vehicles & Utility Vehicles 

(Figs/Nos)

10

203568 209456196525

4423750807

63552

0

50000

100000

150000

200000

250000

300000

AprMay Jun Jul Aug Sep Oct NovDec Jan FebMar AprMay Jun Jul Aug Sep Oct NovDec Jan FebMar AprMay Jun Jul Aug Sep

2010‐11 2011‐12 2012‐1

P. Cars UVs/Vans Avg. Monthly/P. Cars Avg. Monthly/UV & Vans

Passenger Vehicles 

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6

Segment Wise Tyre Supplies(2000‐01 vs. 2011‐12)

Percentage share of OE (Original Equipment manufacturers) has increased acrossall segments during the last 10 years, often 100% increase from the baselevel.

Developments in the Auto sector will have a direct & immediate impact ontyres, and in turn on NR consumption. 11

73% 68% 63%

34%

62%50%

61%46%

7% 19%17%

42%

37%45%

39%

53%

20%13%

20% 24%

1% 5% 0% 2%

0%

20%

40%

60%

80%

100%

2000‐01 2011‐12 2000‐01 2011‐12 2000‐01 2011‐12 2000‐01 2011‐12

T&B LCV P. Car Motorcycle

Rep Mkt OE Export

• Key NR Trends

• NR Demand Projection –

An Alternate Approach

12

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NR Production / Consumption Trend (1991‐92 to 2001‐02 )

13

3.67 3.934.35

4.725.07

5.495.84 6.05 6.22 6.30 6.31

3

5

7(Lakh Tonnes)

NR Production Trend(1991‐92 to 2001‐02)

3.804.14

4.504.86

5.255.62 5.72 5.92

6.28 6.31 6.38

3

5

7(Lakh Tonnes)

NR Consumption Trend(1991‐92 to 2001‐02)

11.0%

7.3%

10.6%

8.4%

7.4%

8.4%

6.3%

3.6% 2.8%

1.3% 0.2%0%

5%

10%

15%

(YoY%)

NR Incremental Production Trend(1991‐92 to 2001‐02)

4.0%

8.9% 8.8%

7.9%

8.2%

6.9%

1.8%

3.4%

6.2%

0.5%1.1%

0%

5%

10%

15%(YoY%)

NR Incremental Consumption Trend(1991‐92 to 2001‐02)

NR Production / Consumption Trend (2001‐02 to 2011‐12 )

14

6.31 6.49

7.127.50

8.038.53

8.258.65

8.318.62

8.99

6

8

10

(Lakh Tonnes)

NR Production Trend(2001‐02 to 2011‐12)

6.386.95

7.207.55

8.01 8.208.61 8.72

9.31 9.48 9.64

6

8

10

(Lakh Tonnes)

NR Consumption Trend(2001‐02 to 2011‐12)

0.2%

2.9%

9.6%

5.3%7.1% 6.3%

‐3.2%

4.7%

‐3.8%

3.7%4.3%

‐5%

0%

5%

10%(YoY%)

NR Incremental Production Trend(2001‐02 to 2011‐12)

1.1%

9.0%

3.5%

5.0%6.1%

2.4%

5.0%

1.2%

6.8%

1.8%1.8%0.0%

5.0%

10.0%(YoY%)

NR Incremental Consumption Trend(2001‐02 to 2011‐12)

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8

Incremental NR Production / Consumption Trend (1991‐92 to 2012‐13)

‐6

‐4

‐2

0

2

4

6

8

10

12

Incremental  Production Incremental Consumption

(%)

Inverse  Relationship in Incremental 

Growth in recent years

15

Decade of Change(NR Production & Consumption)

16

1999‐00 to 2000‐01:

Production growth > Consumption growth

Production growth : 2.64 Lakh Tonnes / 6.2% (CAGR)

Consumption growth : 2.58 Lakh Tonnes / 5.9% (CAGR)2001‐02 to 2011‐12

Production growth < Consumption growth

Production growth : 2.68 Lakh Tonnes / 4.0% (CAGR)

Consumption growth : 3.26 Lakh Tonnes / 4.7% (CAGR)

2012‐13(Apr‐Sep) over 2011‐12(Apr‐Sep)Production : 3.95 Lakh Tonnes vs 3.91 Lakh Tonnes ie (1.1%)Consumption: 5.01 Lakh Tonnes vs 4.75 Lakh Tonnes ie (5.6%)

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9

NR Consumption(Tyre & Non Tyre sectors)

NR consumption in Tyre sector has consistently grown from 48% (less

than half) in 2001‐02 to approx. 65% (approx. 2/3rd) in 2011‐12.17

48%52%

NR Consumption (Tyre vs. Non Tyre) 2001‐02

Tyre Non Tyre

65%

35%

NR Consumption (Tyre vs. Non Tyre) 2011‐12

Tyre Non Tyre

As a result…

• Developments in the tyre sector

• Immediate & direct impact on NR Consumption

Challenge is to

• Assess NR Demand Estimate in a dynamic & volatile economic environment

18

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10

19

Current Methodology used by the Rubber Board(for NR Consumption Demand Forecast)

Regression Analysis• Regression analysis is one of the most commonly used statistical techniquesin social and behavioural sciences as well as in physical sciences. Its mainobjective is to explore the relationship between a dependent variable andone or more independent variables (which are also called predictor orexplanatory variables).

Statistical limitations of Regression Analysis:• The estimated parameters and other relationships have a tendency tochange through time. Thus, the relationships between variables foundduring one period may not persist through a future period.

• Key quantitative variables do not always behave in a way that fits neatlyinto a statistical model.

Practical limitations of Regression Analysis:• Regression analysis does not account for a dynamic/ever changingscenario– the current economy (Global and domestic) is dynamic in natureand needs to be dealt differently.

Influencing Factors

For a fair assessment /estimation of NR Consumption, thefollowing factors/drivers need to be analysed and studied (in termsof their linkage/relationship with NR Consumption pattern) :

20

GDP

Auto Sector Growth

Tyre Sector Growth

Non Tyre Sector Growth

China’s GDP

China’s NR Consumption

SR Price Trends

Crude Oil Price

Others (Political, Climatic, etc)

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11

NR Consumption Demand Forecast Model(Proposed)

21

Methodology

Demand, irrespective of the size, type or nature of the industry, isdependent on multiple factors / drivers influencing consumerpurchasing behaviour directly / indirectly.

Given the dynamic nature of the Global economy and the everchanging facets of the domestic growth/demand scenario, the NRDemand Forecast model has arrived at a list of carefully chosengrowth drivers, ranked in order of importance, basis which NRconsumption demand forecast for FY 2012‐13 has been calculated.

Each driver, basis its expected performance in FY 2012‐13, hasimpacted growth in “NR consumption” for FY 2012‐13. The impactof each driver has been captured through a point system and thefinal impact on the sector has thereafter been derived.

22

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Methodology …Contd

Details of the methodology and growth drivers(Ref. NR demand forecast model in slide 14)

Col. III ‐ The identified drivers/factors ranked in order of importance

Col. IV ‐Major economic drivers/factors identified

Col. V – VIII ‐ Each driver projected on y.o.y variations 2012‐13 vs.2011‐12

Col. VIII – XI ‐ Impact on Growth of the segment projected by eachdriver basis the outcome in Col. V – VII

Each driver's impact on growth of the segment is assigned a score* (asper the standard score table)

23

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii)

Category Segment Driver 

Rankings Drivers

FY 2012‐13

YoY Projection ‐ Likely Growth Scenario (based on yoy growth)

Likely Scenario (Dom. NR Demand)

ScoreHigh Normal Low Negative High Normal Low

Demand Projection for Natural Rubber (based on Driver Impact Assessment) : FY 2012‐13

*Negative influence on NR Demand** Negative influence on Global NR Demand. Hence, indirect impact on NR scenario in India

Normal impact on growth (3%‐4%) 24

Projections(Col v - viii) Score

Impact on Growth (Col ix - xi) Score (Col xii)

Growth (linked to Score)

High 5 to 6 High 60 + >4%Normal 3 to 4 Average 50 to 60 3%-4%Low 1 to 2 Marginal 40 to 50 1%-2%Negative (-)2 to 0 Low < 40 Nil/Flat

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii)

High Normal Low Negative High Normal Low8 GDP Growth 08 Automobile Production 08 China's domestic economy* 08 China's NR Consumption** 67 Synthetic Rubber Price 26 Crude Oil Price 45 Climatic Factors 65 Political / Economic Factors 48 Tyre Production 48 Tyre Exports 68 Tyre Imports* 66 Cycle Tyre & Tubes 65 Auto Components 25 Footwear 45 Belt and Hoses 4

100 54

Category Segment Driver

Rankings Drivers Likely Scenario (Dom. NR Demand)YoY Projection - Likely Growth Scenario (based on yoy growth)

FY 2012-13

Score

Non Tyre Specific

NR

General

Tyre Specific

Est. Growth in NR Consumption in FY‐12‐13 : 4.3%

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13

Model Validation(For FY 2000‐01 & FY 2004‐05)

25

Driver(s) 1999‐00 2000‐01 2003‐04 2004‐05

GDP 6% 4% 8.5% 7.5%

Auto Production (Lakh nos) 51.12  49.95  74.20  87.08 

China GDP 7.6% 8.4% 10% 10.1%

China NR Consumption (‘000MT) 852 1080 1538  2004

SR PricePBR (Rs./100 Kg)

4460 5403 6056 7413

Crude Oil Price($/bbl)

$22.79 $36.54 $34.60 $45.78

Climatic Factors* Normal Normal Normal Normal

Political/Economic Factors* Normal Normal Normal Normal

Tyre Production  (Lakh nos.) 414.15 424.71 546.90 600.82

Tyre Exports      (Lakh nos.) 22.01 24.44 41.01 50.67

Tyre Imports*  (Lakh nos.) Normal Normal 8.54 12.64

Cycle Tyre & Tube Production* Normal Normal Normal Normal

Auto Components Related to Auto Production

Related to Auto Production

Related to Auto Production

Related to Auto Production

Footwear* Low Low Normal Normal

Belt & Hoses* Low Low Normal Normal

Reference Data

26*Assumed/Estimated in the absence of quantitative info.

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14

NR Consumption Trend (INDIA)(2001‐02 vs. 2004‐05)

NR Consumption growth (YoY% change)moved from 0.5% in 2000‐01 to5% in 2004‐05 (a difference of 10 times).

Year NR Consumption (000 MT)

2000‐01 631.45

2001‐02 638.20

2002‐03 695.42

2003‐04 719.60

2004‐05 755.40

27

Demand Projection for Natural Rubber (based on Driver Impact Assessment) : FY 2000‐01

*Negative influence on NR Demand** Negative influence on Global NR Demand. Hence, indirect impact on NR scenario in India Low impact on growth 

(Nil/Flat)

Actual NR Consumption growth FY 2000‐01 : 0.5%

28

Projections(Col v - viii) Score

Impact on Growth (Col ix - xi) Score (Col xii)

Growth (linked to Score)

High 5 to 6 High 60 + >4%Normal 3 to 4 Average 50 to 60 3%-4%Low 1 to 2 Marginal 40 to 50 1%-2%Negative (-)2 to 0 Low < 40 Nil/Flat

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii)

High Normal Low Negative High Normal Low8 GDP Growth 08 Automobile Production 08 China's domestic economy* 48 China's NR Consumption** 27 Synthetic Rubber Price 66 Crude Oil Price 05 Climatic Factors 45 Political / Economic Factors 48 Tyre Production 28 Tyre Exports 68 Tyre Imports* 46 Cycle Tyre & Tubes 25 Auto Components 05 Footwear 25 Belt and Hoses 2

100 38

Category Segment Driver

Rankings Drivers

FY 2000-01YoY Projection - Likely Growth Scenario (based on yoy growth) Likely Scenario (Dom. NR Demand)

Score

NR

General

Tyre Specific

Non Tyre Specific

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15

Demand Projection for Natural Rubber (based on Driver Impact Assessment) : FY 2004‐05

*Negative influence on NR Demand** Negative influence on Global NR Demand. Hence, indirect impact on NR scenario in India

High impact on growth (>4%)

Actual NR Consumption growth FY 2004‐05 : 5%

29

Projections(Col v - viii) Score

Impact on Growth (Col ix - xi) Score (Col xii)

Growth (linked to Score)

High 5 to 6 High 60 + >4%Normal 3 to 4 Average 50 to 60 3%-4%Low 1 to 2 Marginal 40 to 50 1%-2%Negative (-)2 to 0 Low < 40 Nil/Flat

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii)

High Normal Low Negative High Normal Low8 GDP Growth 08 Automobile Production 68 China's domestic economy* 48 China's NR Consumption** 27 Synthetic Rubber Price 66 Crude Oil Price 05 Climatic Factors 65 Political / Economic Factors 48 Tyre Production 68 Tyre Exports 68 Tyre Imports* 06 Cycle Tyre & Tubes 65 Auto Components 65 Footwear 45 Belt and Hoses 4

100 60

Category Segment Driver

Rankings Drivers

FY 2004-05YoY Projection - Likely Growth Scenario (based on yoy growth) Likely Scenario (Dom. NR Demand)

Score

NR

General

Tyre Specific

Non Tyre Specific

Thank You!

30

Questions / QueriesEmail: rajiv@atmaindia.org ; atma@atmaindia.org